The fixed income market again generated positive results during the
second quarter. The yield on the US 10-year Treasury fell from 2.73% to
2.53% over the period amid mixed economic data, geopolitical issues and
several flights to quality. At its meetings in April and June 2014, the
Federal Reserve Board (the "Fed") announced that it would further taper
its purchases of longer-term Treasuries and agency mortgage-backed
securities. In each case, the Fed stated it planned to pare its
purchases by a total of $10 billion per month. In its official statement
following its June meeting, the Fed stated, "Information received since
the Federal Open Market Committee met in April indicates that growth in
economic activity has rebounded in recent months. Labor market
indicators generally showed further improvement. The unemployment rate,
though lower, remains elevated. Household spending appears to be rising
moderately and business fixed investment resumed its advance, while the
recovery in the housing sector remained slow." All told, the overall US
bond market, as measured by the Barclays US Aggregate Index,1
gained 2.04% during the second quarter.

Most US spread sectors2 generated positive returns during the
second quarter. Spread sectors were supported by declining long-term
yields and overall solid demand from investors looking to generate
incremental yield. Among the strongest performers were investment grade
and high yield corporate bonds, and mortgage-backed securities ("MBS").
Commercial mortgage-backed securities ("CMBS") and asset-backed
securities ("ABS") also posted positive results during the quarter.

Performance Review

During the second quarter of 2014, the Fund posted a net asset value
total return of 2.88%, and a market price total return of 4.38%. The
Fund, on a net asset value total return basis, outperformed the Barclays
US Aggregate Index (the "Index") which, as previously stated, returned
2.04% during the quarter.

As was the case for the first three months of the year, the Fund's
spread sector exposure drove outperformance during the second quarter.
Security selection and a substantial overweight allocation to investment
grade corporate bonds—both financials and industrials—contributed to
performance. An overweight to high yield corporate bonds was also
beneficial. Elsewhere, an overweight to, and security selection in, CMBS
was beneficial to results. Finally, the Fund's yield curve positioning
was additive to performance during the quarter. In particular, an
overweight to the long end of the curve and an underweight to the short
end of the curve enhanced the Fund's results.

On the downside, the Fund's duration positioning detracted from results.
We tactically adjusted the Fund's duration during the quarter but it
remained shorter than that of the Index. This was a drag on performance,
as rates generally declined during the second quarter. As of June 30,
2014, the Fund’s duration was 5.0 years versus the 5.5 year duration of
the Index.

There were no significant adjustments made to the Fund's sector
positioning during the quarter. That said, we added to our CMBS
exposure, largely through the use of CMBX derivatives. We also increased
the Fund's position in collateralized loan obligations (CLOs), as we
felt they offered good fundamental value.

Outlook

We believe that the US economy remains on a positive trajectory, as the
housing market continues to improve and unemployment is slowly
declining. In addition, consumer spending has been solid. While Europe
is still in a recession, there have been some signs of stabilization, in
part due to ongoing support from the European Central Bank. Japan's
economy has shown signs of recent strength, although it is too early to
tell if the Bank of Japan's highly accommodative monetary policy will
lead to a sustainable expansion and an end to its lengthy deflationary
cycle. Elsewhere, while growth in China has moderated, we feel that the
country can avoid a hard landing for its economy.

We believe that the generally improving economic backdrop will be a
positive for the spread sectors and that we could see some additional
spread tightening. However, if growth gains additional momentum we could
see interest rates move higher and negatively impact the overall fixed
income market. We are also closely monitoring a potential investor
rotation from fixed income to equities. Given these potential headwinds
we expect to maintain the Fund's short duration.

Portfolio statistics as of June 30, 20143

Top ten countries4

Percentage of total portfolio assets

United States

71.81%

United Kingdom

5.60

Cayman Islands

5.29

Brazil

4.28

Mexico

3.25

Netherlands

3.07

Norway

1.59

Sweden

0.94

Canada

0.89

Spain

0.71

Total

97.43

Portfolio composition

Corporate bonds

79.77%

Asset-backed securities

2.8

Commercial mortgage-backed securities

8.74

Collateralized Loan Obligations

0.61

Mortgage & agency debt securities

3.12

Municipal bonds

2.60

US government obligations

0.00

Non-US government obligations

0.87

Common stocks

0.05

Preferred stocks

0.09

Short-term investments

0.78

Options Purchased

0.07

Cash and other assets, less liabilities

0.50

Total

100.00

Credit quality5

Percentage of total portfolio assets

AAA

0.0%

US Treasury6

0.0

US Agency6,7

2.5

AA

2.5

A

11.9

BBB

57.4

BB

13.4

B

1.4

CCC and Below

1.0

Non-rated

8.7

Cash equivalents

0.8

Other assets, less liabilities

0.4

Total

100.0

Characteristics

Net asset value per share8

$16.27

Market price per share8

$14.89

NAV yield8

3.69%

Market yield8

4.03%

Duration9

4.95 yrs

Weighted average maturity

9.39 yrs

1 The Barclays US Aggregate Index is an unmanaged broad-based
index designed to measure the US dollar-denominated, investment grade,
taxable bond market. The index includes bonds from the Treasury,
government-related, corporate, mortgage-backed, asset-backed and
commercial mortgage-backed sectors.

2 A spread sector refers to non-government fixed income
sectors, such as investment grade or high yield bonds, commercial
mortgage-backed securities (CMBS), etc.

3 The Fund's portfolio is actively managed, and its portfolio
composition will vary over time.

4 The Fund does not take active currency risk; as of June 30,
2014, the Fund's holdings in foreign fixed income securities were
denominated in US dollars.

5 Credit quality ratings shown in the table are based on
those assigned by Standard & Poor’s Financial Services LLC, a part of
McGraw-Hill Financial, (“S&P”) to individual portfolio holdings. S&P is
an independent ratings agency. Rating reflected represents S&P
individual debt issue credit rating. While S&P may provide a credit
rating for a bond issuer (e.g., a specific company or country); certain
issues, such as some sovereign debt, may not be covered or rated and
therefore are reflected as non-rated for the purposes of this table.
Credit ratings range from AAA, being the highest, to D, being the
lowest, based on S&P’s measures; ratings of BBB or higher are considered
to be investment grade quality. Unrated securities do not necessarily
indicate low quality. Further information regarding S&P’s rating
methodology may be found on its website at www.standardandpoors.com.
Please note that any references to credit quality made in the commentary
preceding the table may reflect ratings based on multiple providers (not
just S&P) and thus may not align with the data represented in this table.

6 S&P downgraded long-term US government debt on August 5,
2011 to AA+. Other rating agencies continue to rate long-term US
government debt in their highest ratings categories.

7 Includes agency debentures and agency mortgage-backed
securities.

8 Net asset value (NAV), market price and yields will
fluctuate. NAV yield is calculated by multiplying the current quarter’s
dividend by 4 and dividing by the quarter-end net asset value. Market
yield is calculated by multiplying the current quarter’s dividend by 4
and dividing by the quarter-end market price.

9 Duration is a measure of price sensitivity of a fixed
income investment or portfolio (expressed as % change in price) to a 1
percentage point (i.e., 100 basis points) change in interest rates,
accounting for optionality in bonds such as prepayment risk and call/put
features.

Any performance information reflects the deduction of the Fund’s fees
and expenses, as indicated in its shareholder reports, such as
investment advisory and administration fees, custody fees, exchange
listing fees, etc. It does not reflect any transaction charges that a
shareholder may incur when (s)he buys or sells shares (e.g., a
shareholder’s brokerage commissions).

Disclaimers Regarding Fund Commentary - The Fund Commentary is
intended to assist shareholders in understanding how the Fund performed
during the period noted. The views and opinions were current as of the
date of this press release. They are not guarantees of performance or
investment results and should not be taken as investment advice.
Investment decisions reflect a variety of factors, and the Fund and UBS
Global AM reserve the right to change views about individual securities,
sectors and markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the Fund’s future investment intent.

Past performance does not predict future performance. The return and
value of an investment will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost. Any Fund net
asset value ("NAV") returns cited in a Fund Commentary assume, for
illustration only, that dividends and other distributions, if any, were
reinvested at the NAV on the payable dates. Any Fund market price
returns cited in a Fund Commentary assume that all dividends and other
distributions, if any, were reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Returns for periods of less than one
year have not been annualized. Returns do not reflect the deduction of
taxes that a shareholder would pay on Fund dividends and other
distributions, if any, or on the sale of Fund shares.

Investing in the Fund entail specific risks, such as interest rate,
credit and US government securities risks as well as derivatives risks.
Further information regarding the Fund, including a discussion of
principal objectives, investment strategies and principal risks, may be
found in the fund overview located at http://www.ubs.com/closedendfundsinfo.
You may also request copies of the fund overview by calling the
Closed-End Funds Desk at 888-793 8637.